Thursday, 13 January 2011

More power to Holyrood to protect renewables programme?

As more people understand the details of the UK Government's electricity market reform (EMR) proposals the more it becomes clear that they threaten to emasculate the Scottish Government's renewables programme. There are potential advantages in giving more power over renewable energy policy to the Scottish Government.

The Scottish Government has a target of achieving the supply of 80 per cent of Scottish electricity demand by 2020. At the moment around 30 per cent of Scottish electricity is being supplied by renewable energy, with around half of this 30 per cent now supplied by wind power. The large bulk of the rest of the 80 per cent target is also expected to come from a mixture of onshore and offshore wind power.

Yet the UK Government's EMR proposals, establishing a 'low carbon mechanism', point to the establishment of an 'auction' system of allocating contracts to supply renewable energy. Only holders of the contracts will have a good chance of developing schemes - either (in the worst case scenario) directly in competition with nuclear power, or, indirectly through 'technology bands'.  In both cases the renewable energy developers will have to compete, directly or indirectly,  with nuclear power for restricted funds (charged to electricity consumers). This is because the UK Treasury will want to impose a limit on electricity price increases and thus the amount of financial support given to renewable and nuclear energy.

However, it gets worse for renewables, because an 'auction' of contracts will mean that the offshore wind programme is likely to achieve only half its targets for installed capacity and the onshore programme is likely to achieve only a quarter of its targets for capacity. Historically, when auction systems have been used, around half the proposals that are successful in bidding the lowest tenders (expressed in prices to be paid for their energy generated) have been put into practice. This is because prospective developers make over-optimistic bids (to ensure they secure the contracts) that later prove to be uneconomic. Hence a lot of the offshore windfarm proposals already agreed by The Crown Estates will not be implemented. In the case of onshore windfarms, however, there is the further hurdle of achieving planning consent. Only around half of proposed schemes are given planing consent. So with onshore wind, under an 'auction' system, we get 'half of half' of the target - that is a quarter.

So the UK Government can claim to be giving over twice as many contracts for wind power than is actually likely to be implemented. This may be a convenient ruse for a Westminster Government which is anxious to give priority to nuclear power and blame renewable energy developers for not meeting their targets, but it does nothing for the Scottish Government which is giving sole priority to renewables as opposed to nuclear power.

Of course the UK Government is calling their proposed system a 'feed-in tariff' - the same name given to successful renewable support systems such as used in Germany. But the two things are not the same as in the case of a German-style feed-in tariff good rates for electricity are given to renewable generators who are not limited in what they can do by having to win an 'auction' competition. But in the UK a real German style feed-in tariff only exists for small scehmes. Currently of course we have the Renewables Obligation which gives freedom to large developers to set up schemes provided they can achieve planning consent. if they do not succeed in one place, whether for planning or economic reasons, they can try somewhere else without having to win an auction contest.  The Renewables Obligation involves issuing 'Renewable Obligation Certificates' or ROCs to renewable generators. This system has faults, but it is still much preferable to the UK Government's proposals.

Let us hope the Scottish Government sticks to its guns on this issue as reflected in its initial response (see quote below), and demands an effective financial support mechanism to support renewable energy. Indeed, given the conflicting priorities of the UK Government between renewables and nuclear power it seems there would be big advantages in having authority over renewable energy support mechanisms transferred from Westminster to Edinburgh.   Scotland's First Minister said on December 16th:

'Any new system must be at least as effective as the current framework of banded ROCs, where we have delivered unique and enhanced levels of support for offshore wind and for wave and tidal capable of delivering capacity as well as new industries and jobs. We are concerned that changes which are designed chiefly to extend our support mechanisms to include nuclear power run a material risk of being delivered at the expense of investment in renewable generation and CCS in Scotland. We will strongly resist any change for a support mechanism for nuclear power at the expense of renewable generation and CCS in Scotland, and we believe that Scottish Ministers should have full control over any new financial support mechanisms for renewables and CCS in Scotland'

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